Risk and Rewards of Tweeting Earnings

Canadian companies tweeting their earnings to the market may be a relatively new phenomenon, but according to a study The Disclosure of non-GAAP Measures in Social Media by Canadian Companies from the CPA Ontario Centre for Capital Markets and Behavioural Decision Making, corporate disclosures on social media hold both promise and peril.

Analyzing the use of social media by Canadian companies that Tweet their earnings to the market, the study found inconsistencies in how companies use the platform to disclose financial information.

While some companies provide links to financial documents that supported their 280-character (or less) disclosures, others merely allude to their existence. Not only does this create a regulatory burden, but it can also be misleading for investors who focus on the information provided in the tweet itself.

“We don't have information monopolies anymore. The playing field has been levelled,” says Associate Professor Chima Mbagwu, Director, CPA Ontario Centre for Capital Markets and Behavioural Decision Making and one of the study’s authors.

The downside of information being so widely available, according Mbagwu, is that everyone thinks of themselves as an expert, even though they do not have the capacity to act.

In the course of this research Mbagwu and his co-authors were surprised to find how few companies break the law: “I thought it would be kind of a wild, wild west out there. The tweets are not regulated by anyone. For now, managers are - in most cases - not trying to mislead the markets”.

Key takeaways from the paper

  1. With social media accepted by regulators as a way of communicating to investors, auditors must keep their eye on firms’ feeds as well as their standard filings to help ensure they don’t end up on the wrong side of regulations.
  2. Internal auditors have to manage risks of information leakage and reputational damage, third-party risk, and governance risk. They must develop an understanding of all communications mediums and collaborate with social media teams to mitigate information risks.
  3. As the role of the modern CPA continues to evolve, educators, accounting firms and professional bodies will need to provide training to ensure professional accountants have the necessary skills to communicate through social mediums.
  4. Regulators will have to enhance rules, requiring companies to link disclosure tweets to full press releases instead of any other documents to increase transparency to shareholders.